Ingredion(INGR) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 2024 were approximately $1.9 billion, down 9% year-over-year, while gross profit dollars increased by 1% with gross margins up 240 basis points to 23.7% [15][12] - Adjusted operating income was $270 million, reflecting an 8% increase compared to the prior year, driven by lower raw material costs and higher volume [15][4] - The decrease in net sales was primarily due to lower price mix and the exit from the South Korea business, which had an $80 million impact on sales volume [15][5] Business Line Data and Key Metrics Changes - Texture and Healthful Solutions segment saw net sales volumes increase by 8%, while net sales were down 5% year-over-year [6][9] - Food and Industrial Ingredients LatAm net sales were down 9%, while U.S. and Canada segment net sales decreased by 8% due to declining price mix driven by lower corn costs [17][18] - The overall volume growth across segments was up 1%, and when adjusted for the South Korea business sale, volumes were up 5% [6][15] Market Data and Key Metrics Changes - In the U.S. and Canada, there was a seasonal demand increase, particularly in the packaged food sector, with grocery retailers witnessing growth in center store sales [7][8] - The Middle East and Africa experienced strong demand recovery, particularly in dairy and dairy alternatives, returning to pre-pandemic levels [7][8] - The company reported improved customer acquisition in Asia, supported by previous investments in China [8] Company Strategy and Development Direction - The company is focused on optimizing pricing strategies and leveraging scale in raw material procurement to enhance financial performance [5][10] - A multi-year cost savings program called "cost to compete" was launched, targeting $50 million in run rate savings by the end of 2025 [10][11] - The company is committed to sustainability, achieving a 22% reduction in Scope 1 and 2 emissions and increasing renewable electricity purchases to 25% [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong profit growth due to volume recovery and lower input costs [25][22] - The outlook for 2024 includes expectations for sales volume growth, further reductions in cost of goods sold, and improved gross margins [22][23] - The company anticipates adjusted operating income to increase mid-single digits, with strong growth expected in the second half of the year [22][23] Other Important Information - The company repurchased $66 million of outstanding common shares in the first half of the year and remains committed to repurchasing at least $100 million in total for the year [21][47] - The company is also exploring M&A opportunities while balancing share repurchase activities [48][49] Q&A Session Summary Question: Insights on end-user demand versus restocking - Management noted that strong volume growth in Q2 builds off prior trends, with distributors replenishing inventories as consumer demand increases [28][30] Question: Clarification on gross margin expansion drivers - Management highlighted that lower raw material costs, volume growth providing fixed cost absorption, and internal operational improvements contributed to gross margin expansion [33][34] Question: Guidance on EBIT level and margin expectations - Management indicated that mid-single digit operating income growth reflects confidence in Q2 dynamics and ongoing cost-saving initiatives [40][41] Question: Capital allocation and M&A pipeline - Management confirmed ongoing share repurchase activities and a nurturing M&A pipeline, with a focus on enhancing value propositions [46][49] Question: Performance in Latin America - Management reported strong results in Mexico due to increased sweetener demand and noted improvements in Argentina and Brazil driven by favorable economic conditions [52][67] Question: Clarification on losses in the other business segment - Management confirmed that while the protein fortification segment is loss-making, both the PureCircle and Pakistan businesses are generating positive operating income [69][70] Question: Volume growth in Texture and Healthful Solutions - Management indicated that the volume growth was primarily driven by consumer demand rather than restocking, particularly in grocery and prepared meal categories [71][72]